Friday, May 9, 2008

So who needs a distributor

I was in NYC this week to serve on a panel for the GTDC (global technology distribution council) This group consists of 32 of the leading distributors of IT products worldwide and this was their Wall Street briefing. The room was filled with disty execs from Ingram, Tech Data, Synnex, Bell Micro, Arrow, Avnet and others as well as a room full of Wall Street investors from the large players. The audience was there to determine the health of distribution and determine investment strategies for the coming year. I came in a sports coat and no tie and was about the only one there not is a black suit and tie. Sort of didnt' fit but they still let me serve on the panel.

There were three panels during the morning session. The first consisted of four specialty distributors, the second a panel of resellers, and the third the four broadline disties. When we went through the introductions it was questionable why I was up there. Reseller number one did over 1 Billion in sales last year. Reseller number two a mere 950 million. I was number three with a puny 17M and the fourth on the panel was a services reseller who did about 4M in revenue. So it was quite a variety to say the least. The main focus was on the economy and how we see our customers impacted. These investors wanted to know if things were going to be impacted by poor purchasing. We have not seen that in our customer base and the overall feedback was that resellers are optimistic about the year. We certainly are at HTS.

It was a good experience and I learned a lot about distribution I did not know. These guys obviously play to Wall Street. One thing I have really began to understand is the power of Wall Street to control the behavior of our distributors and vendors. They cause unnatural activity around month, quarter and especially year end. These guys have the ability to take the stock price down in a heartbeat and there is a real concern about keeping the folks on the Street happy. Seems like the CEO's and other key leaders in the IT sector are very focused on that.

I did learn some facts that are pretty amazing. The GTDC members did over 100B in sales last year (yes that is B as in Billion). So for me to think I have a lot of impact on these guys is just plain crazy. They experienced 14% growth and their gross margin was 8%. They have been making a shift to more value add for us as resellers which is the same thing we are trying to do with our customers. They have a bit over 5% of their sales in operating expenses and that leaves them a little over 2% in margin. Their overall operating income grew by 23% year over year which is good - we need these guys to stay in business or we are all out of work.

Some other interesting facts were as follows:
Desktops grew at 10.6% on a 1B sales category. And people think the desktop is dead.
Notebooks grew at 14.4% on 3B in sales.
Storage grew at 6.8% on 1B in sales
Warranties grew at 72.8% on 1B in sales. There is some real action on this one.

The most amazing statistic I heard was that the 100B in sales from the disties is out of a total sales bucket of 1T (T as in trillion) so they are only getting today abouit 10% of the total technology sales worldwide and the general attitude was lots of optimism as there is certainly plenty of upside for them.

So I encourage you to show some love to your distribution partner(s). Our strategy is to consolidate our purchasing primarily to Ingram and go deep in our relationship with them. We don't buy on price but on value. That is how we sell, so it only makes sense we are consistent and focus on the relationship and value rather than the price. We actually practice what we preach to our customers and it is working out quite well for us. Far too many partners think they have to get the lowest price on the products they are reselling. We just don't find that to be true at all. Splitting your purchasing among a number of sources dilutes the relationship and ultimately the value that a disty can provide. Take a look at how you run your purchasing. Incent people to bring in the most value to your organization and customers, not the lowest price. Price can be extremely decieving and often does not reflect the reality of what value a distributor can provide. We do have a second disty that we use if product is not available to us - now we are aligning with Synnex for that role - but it only happens when we can't source it from our primary. Our purchasing people don't waste time getting competitive prices - they consolidate all our purchases and place the order. That alone takes a lot of cost out of our model and is a part of the value we get from single source purchasing.

Hug your disty - we need them as much as they need us!

No comments: